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Signet's Loan Problem

Summary

Signet is being hurt by the diamond swapping incident.

Its credit portfolio will take a hit if the credit cycle continues to weaken.

It should monetize the portfolio to remove risk.

This latest quarter reported by Signet (NYSE:SIG) follows through with the thesis made in the last article I posted. Signet was hurt by the diamond swapping controversy even though the company tried to swipe it under the rug by blaming the poor results on Brexit and low oil prices. It's not a great idea to start blaming events macro events when it is clear the diamond swapping negative publicity hurt the company. The company should deal with the issue head on and be more honest with investors.

Blaming the Brexit for same store sales declines of 2.3% isn't logical. The U.K. sales were the best performing segment as they increased 0.8%. It's unlikely that the Brexit hurt U.S. sales more than U.K. sales. As you can see from the consumer sentiment index in America, there wasn't a major decline caused by the Brexit which could've hurt sales.

I also find the weakness blamed on energy price declines to be curious. I checked Signet's press releases for the past 2 years and I never saw any mention of energy. Now all of a sudden the company is being impacted by the decline in oil prices that happened in 2014 and 2015? There is no question some areas of the country have been hurt by low oil prices, but my theory is Signet is only mentioning it now to cover up for the weakness caused by the diamond swapping controversy where it was reported some wedding rings were switched when taken in for repairs.

On the bright side, the company is planning to test new technology to confirm the authenticity of diamonds sold. The system will track diamonds by their unique markings to create a transparent system for customers. This is a great change. The sooner it is implemented, the better because any new story that comes out will have a bigger than normal brand impact as...


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